Paul Haahr’s Blog

Over my vacation, I read Kurt Eichenwald’s Conspiracy of Fools, which is a wonderfully entertaining, novelistic narrative of Enron’s history and collapse. More on that in future posts, but having just finished that book, I choked when I read this in the New York Times’s hagiographic profile of Henry Paulson from Sunday:

Most notably, he advocated bundling bad loans into off-balance-sheet entities that theoretically would allow banks to improve their financial standing. The plan was a total flop and yet another signal that Mr. Paulson underestimated the severity of the problem.

I’m sorry, but how would that have helped? Isn’t this just an accounting trick? Isn’t the issue that these loans are not being repaid? I can understand the value in writing the loans down, but moving them off balance sheet without writing the loans down just shifts the problem around. Something’s very wrong with the state of accounting if this is what the Treasury Secretary is recommending.

“Tell me what you know, then tell me what you don’t know, and only then can you tell me what you think. Always keep those three separated.”

– Colin Powell to Mike McConnell, summer 1990, as reported in Lawrence Wright, A Reporter at Large: The Spymaster, The New Yorker, January 21, 2008

The article’s well worth reading and quite scary, I thought, both for the incompetence of the “intelligence community” and the frightening steps McConnell wants to take to make it effective, but I loved directness and efficiency of Powell’s advice.

First of all, congrats over to the team at Mint.com for going live and winning the Techcrunch40 prize. As a die hard Quicken user, I think it’s great that companies are pushing in this space. I can’t say I save money or time by using Quicken, but it lets me feel in control. (And I could always tell when I wasn’t feeling in control of my finances, because I would avoid Quicken.) I wish Mint much luck.

But I’m also left with a slightly nostalgic feeling — and even a bit of jealousy — because I tried to create a similar venture back in late 1999. I was coming off of another startup (which I got wistful for when I first heard about Entise Systems and Azul Systems), all my friends were starting web companies, and I thought that what the world needed was a web-version of Quicken. At the time, everyone I talked to thought it was a crazy idea. People wouldn’t trust some web company with access to all their accounts. I was too late and the market was going to be owned by Yodlee or MyCFO. Only obsessives used Quicken and they were already satisfied.

I built a small prototype that could import my Quicken data. And I managed to disable my Bank of America and American Express accounts a few times while building screen scrapers for them. More importantly, though, I learned a few lessons about startups (don’t try to do it as one person — you need moral support and someone to bounce ideas off of) and about myself (I’m good at technology but not at sales). And, after working on it for a few months, I realized I wasn’t actually interested in building and selling the product, only in using it. So, I closed it down and took a job at a startup some friends had founded, which then disappeared with most of the rest of Web 1.0.

I wonder if it’s still a crazy idea. I hope not. Mint, with their scraping and auto-categorization, seems to have done a nice job. I suspect I’m going to hold off on using Mint.com, because this is one kind of data I actually like to have sitting on my hard drive and not out in the cloud. At least for now.

I read today’s NY Times article on Silicon Valley millionaires who don’t feel rich with a mix of amusement and annoyance. With a few exceptions, it doesn’t feel like the Silicon Valley I know — perhaps it’s just that, when I’m in the valley, I tend to hang out with hard core engineers. I’m astounded by the folks who consented to be interviewed and gave such idiotic-sounding quotes.

There’s one thing that the article does get right, other than the high cost of living in the bay area, which is that it does feel like everyone I know who made money in Silicon Valley credits luck as the first factor in their success. I think that’s right.

But the main thing that I’ve noticed among people who are still working after having made a lot of money is that money does not seem to be the reason they’re working. First, the typical Silicon Valley engineer, regardless of where they’re from, seems to have grown up with a middle class work ethic; absent work, they don’t know what to do. Second, people who work in tech usually have a sense of progress which is very tied to technology; when engineers think about making a contribution to the world, it’s often in terms of new technology — clean energy, a new programming language, organizing the world’s information, etc. Finally, most of us do like our work, at some deep level; how many Silicon Valley engineers do you know who wouldn’t putter around with technology in their spare time?

What in this changes when someone makes money? From what I can see, very little.

And what’s the alternative? Managing one’s estate? I think most engineers don’t want to become full-time financial advisers to themselves. Philanthropy? I’ve heard a lot of admiration of Warren Buffet’s approach, keeping working and giving away money to someone who knows how to give it away well. Playing golf or flying planes? There’s some of that, but it’s hard to get a true sense of accomplishment from most hobbies. I don’t think Silicon Valley should aspire to recreate the English upper classes of the 19th century, which seems to be the vision the Times article had for the wealthy.

As an aside, I know a good number of people who’ve gotten off of the treadmill and are retired. Some are happy, some are not, mostly the same as they were before retiring.

Appropriately for tax season, I recently finished reading David Cay Johnston’s Perfectly Legal. The book describes the current state of the U.S. tax system; the description is of a no-longer progressive, mostly flat system which systematically offers loopholes to the richest while hunting for cheaters among the poorest.

Johnston covers taxes for The New York Times. I’ve read Johnston’s articles for years and I had expected the book to have the Times’s grand, objective style. It doesn’t; it’s an angry, muckraking book about what he rightly sees as an injust transformation. The message of the book, ultimately, is that the tax code is promoting income inequality.

Johnston blames the current situation on the power of the “political donor class,” the rich few who make the bulk of political donations in this country. That’s undoubtedly true, but I think it’s only part of the story. I think that the rise of an anti-tax ideology as the key pillar of the dominant political party in this country — and the attribution of Republican success to the party’s opposition to taxes — has meant that, regardless of how it happened, taxation doesn’t need explicit opposition from the political donor class anymore.

His chapters on the lack of enforcement of the tax code among the rich and the tax-deniers were, I thought, the most interesting and informative. He also goes into great and informative detail Alternative Minimum Tax; the AMT has been discussed a lot, but Johnston makes clear how far from its original purposes it is today.

The book does has flaws. The biggest is probably that it’s very repetitive. On the other hand, for a book on taxes, it’s not in the least dry — this is a book which should make you angry.

The question, of course, is how to do anything about it. As a political donor, it makes me want to give money to candidates who’ll fix the system, even if that runs counter to a narrowly-constructed version of my self-interest. But nobody’s even running on a “collect the taxes we’re owed” or “make the tax system more progressive” ticket — as Johnston points out, people run away from those ideas today. I don’t think the American political mainstream includes the notion that taxes can be done well; ultimately, I don’t think the country can survive that for very long.

About five years ago, I bought life insurance for the first time. We’d bought our house in the previous year and our son was about to be born, so it seemed like a prudent thing to do. I shopped around and got a good deal from Western Southern Life on a five-year term policy. For the next five years, they debited $19.50 a month from my checking account and, in case I died, a significant portion of our mortgage would be paid off; I thought we were both happy with this arrangement.

For reasons not related to my satisfaction with the company, I was planning on letting the policy expire. Then, earlier this week, I got a letter from Western Southern saying “The recent change in your Pre-Authorized Check payments will become effective with the next withdrawal from (my bank account).” Hmm, what’s this about? No “Would you like to renew?” note. No “Here are some policy options for you” call. Just “We’re changing your billing.” (Admittedly, we recently moved, and perhaps some mail was lost in the forwarding process? I don’t think that’s been happening, but how do I know for sure?)

But the stupid part is how much they changed: the monthly premium went up to $244.50. (More than twelve-and-a-half times more.) When I called to not-so-politely decline this coverage, I was told that, as I hadn’t called to change my policy, they just put me on one of their “standard rate” policies.

So, this company, which I’d had a good feeling about before, just became a swamp of leaches and con-artists in my mind, luring customers in with good deals and waiting for them not to notice the increased debits. How many people fall for this trick? For how long?

Why would a company that’s trying to build long-time relationships with customers do this? Don’t they see that this gives them a sleazy, fly-by-night reputation? Don’t they see that anyone they do this to will never work with them again?